Liquidity and asset returns under asymmetric information and imperfect competition

Dimitri Vayanos and Jiang Wang

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We analyze how asymmetric information and imperfect competition affect liquidity and asset prices. Our model has three periods: agents are identical in the first, become heterogeneous and trade in the second, and consume asset payoffs in the third. We show that asymmetric information in the second period raises ex ante expected asset returns in the first, comparing both to the case where all private signals are made public and to that where private signals are not observed. Imperfect competition can instead lower expected returns. Each imperfection can move common measures of illiquidity in opposite directions.

JEL-codes: D43 D82 G12 G14 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2012-07-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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http://eprints.lse.ac.uk/119045/ Open access version. (application/pdf)

Related works:
Journal Article: Liquidity and Asset Returns Under Asymmetric Information and Imperfect Competition (2012)
Working Paper: Liquidity and Asset Returns under Asymmetric Information and Imperfect Competition (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119045

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